1H19 CNP of RM71.0m came in within expectations, making up 46%/45% of our/consensus full-year estimates. No dividend was declared, as expected. No changes to FY19- 20E earnings. Maintain UP with an unchanged SoP-driven TP of RM1.20.

Within expectations. 1H19 CNP of RM71.0m came in within expectations, making up 46%/45% of our/consensus full-year estimates. No dividend was declared, as expected.

Results highlight. 1H19 CNP improved by 5% YoY, driven by improvements such as: (i) lower financing cost (-74%), and (ii) better margins where pre-tax margin improved to 17.8% (+1.2ppt) which we believe arose from better billings for higher-margin jobs. QoQ, 2Q19 CNP grew 2% amid a marginal drop in revenue (-2%), thanks to improvement in margins similar as above.

Solid outstanding order-book. To-date, KERJAYA has secured RM1.1b worth of jobs and management is confident of exceeding their replenishment target of RM1.2b. Its outstanding order-book remains fairly healthy at RM3.3b providing them at least 3-year’s visibility. We believe KERJAYA stands a good chance of winning more contracts in Penang, mainly from E&O’s Seri Tanjung Pinang 2 (STP2) project.

Earnings estimates. Post results, we make no changes to our FY19- 20E earnings.

Maintain UNDERPERFORM with an unchanged SoP-derived Target Price of RM1.20 pegged to unchanged valuation of 10.0x PER on FY20E, due to the recent rise in share price. The valuation ascribed to KERJAYA is at the higher-end of our small-mid cap PER range of 6.0- 11.0x due to their strong track record of “zero delay” project delivery coupled with superior margins compared to other players. Our SoP derived TP implies a FY20E PER of 9.5x which is lower than our ascribed 10.0x valuation for its construction division as this is diluted by its property division, which was valued at a lower multiple of 5.0x.

Risks to our call include: lower-than-expected job wins, delay in construction progress and lower construction margins.

Source: Kenanga Research - 28 Aug 2019